Outlook: Fuel Costs Could Rise 20 Percent

The low fuel price bump that many businesses enjoyed in 2016 doesn’t look like it’s going to last in 2017, say market experts. The U.S. Energy Information Administration (EIA) is now looking at a Brent crude oil price averaging around $52 per barrel in 2017 – that’s up from $43.

That’s a roughly 20 percent increase for small businesses that must run company cars, delivery vehicles, heat offices, run generators and anything else that relies on fuel.

Specifically, the U.S. Energy Department’s own “Short-Term Energy Outlook” projects trucking’s diesel will average $2.70 per gallon next year, which would be a 16.6 percent increase over 2016’s projected average price of $2.31 per gallon. But some experts are looking at $3 per gallon.

The Organization of the Petroleum Exporting Countries and non-OPEC oil producers reached a deal to cut output by almost 1.8 million bpd from Jan. 1. That has helped boost prices in recent weeks, though it will be some time before it is clear whether countries are sticking to those commitments.

2015 Here We Come?

The current consensus projections puts diesel at roughly what it cost in 2015. Still, that’s significantly less than the 2014 average of $3.83 per gallon.

Natural gas prices are also set to rise in the coming year.

“Growing domestic natural gas consumption, along with higher pipeline exports to Mexico and liquefied natural gas exports, contribute to the Henry Hub natural gas spot price rising from an average of $2.49 per million British thermal units (MMBtu) in 2016 to $3.27/MMBtu in 2017,” wrote EIA in its report.

EIA also says the average share of U.S. total utility-scale electricity generation from utility-scale plants will grow by 0.7 percent in 2017. In 2015, electricity generation from utility-scale plants averaged 11,172 gigawatt hours per day, EIA said.

$3/Gallon Gas Likely?

Just think what $3 gasoline means for the average family driving 12,000 miles a year. The University of Michigan’s Transportation Research Institute, using last month’s average of 24.9 miles per gallon among new cars, found the additional cost would be $381. Sounds small to some, but it can be a hit.

Now multiply that by the thousands for fleet owners. The emphasis on fuel savings hit a lull over the last two years as gas prices plunged from $4.00 a gallon. Many fleet owners and larger companies put the latest cutting-edge fuel savings tech on the back burner while American families abandoned fuel-efficient cars for sport-utility vehicles and monster pickup trucks.

“With this era of low gas prices, many Americans were trading in their vehicles, selling their vehicles, buying new vehicles that have been less fuel-efficient,” Patrick DeHaan, a senior petroleum analyst with GasBuddy, told USA Today. “If gas prices do start to inch up there’s a lot of Americans that bought a new vehicle in the last two years during this climate of low gas prices, so it may affect them more.”

The Good News

Keep in mind much of this assumes that the international scene will remain as it is now, despite a new, mold-breaking American president who promises to shake things up. Any upheaval in the Middle East – yes, we know, how could it get any worse? – also could send prices soaring or plunging.

The good news: the United States is now a major oil power, thanks to the fracking revolution. It’s no longer beholding to foreign powers compared to just a decade ago. And that means some continued hope at the pump.